While sitting in a meeting recently I was asked, ‘what exactly is the difference between Pharma and BioPharma?‘. For most of us we may not necessarily know the difference between both so here is a basic description of the differences between the two industries which have made Ireland their home in the last number of years:

Pharmaceutical

Working with plant and chemical based compounds, pharmaceutical companies work their magic to make medicines that cure or manage diseases, and protect us from infection. Pharmaceuticals include a handful of major companies that dominate the industry. While many of these firms also produce animal health products, livestock feed supplements, vitamins and a host of other goods, this profile will focus solely on their drug products used to treat human illness.

Depending on their size and strategy, pharmaceutical companies may conduct extensive research in-house or they may seek to license promising drugs from academia, other pharmaceuticals, or biotechnology companies. The latter firms are generally smaller than their Big Pharma competitors, and they employ cellular and bimolecular processes to make medicines or diagnose illness.

Biotechnology

Biotechnology is the applied knowledge of biology, it seeks to duplicate or change the function of a living cell so it will work in a more predictable and controllable way. The biotechnology industry uses advances in genetics research to develop products for human diseases and conditions. Several biotech companies also use genetic technology to other ends, like the manipulation of crops. Biopharmaceuticals hold great promise for treating some of the most intractable medical conditions such as cancer and autoimmune disease. Biopharmaceuticals are therapeutic agents intended to treat symptoms and/or underlying causes of a variety of disorders and diseases.

The primary difference between biopharmaceuticals and traditional pharmaceuticals is the method by which the drugs are produced: the former are manufactured in living organisms such as bacteria, yeast and mammalian cells, whereas the latter are manufactured through a series of chemical synthesis.

Biopharmaceuticals are primarily developed in both academic and industrial laboratories. The commercialisation process is often funded by venture capital firms (for academic and start-ups) or drug companies. Prior to sale, drugs are assessed by the Food & Drug Administration (FDA) and other international regulatory agencies for safety and efficacy.

Biotech opportunities largely mirror those in the pharmaceutical industry. The key difference is that biotech firms are much more focused on research because they are still developing their initial products. Biotech firms tend to expand their marketing and sales forces when, and if a viable product nears FDA approval. Biotech companies tend to be located in geographical clusters, often near prominent research universities. The largest concentration of biotech companies in Ireland are in Cork and Dublin as these areas have made an effort to focus on drawing biotech companies by devoting to finding resources for them.

Those who choose to work in this industry enjoy the very real satisfaction of knowing that they are working to produce drugs that could make a radical difference in the lives of thousands, even millions, of people.

Mergers and acquisitions hit a very rapid pace in 2013, valued at close to $34 billion. The team at Bank of America Merrill Lynch sees 2014 being a promising year for biotech mergers and acquisitions (M&A). The firm even noted that M&A is a fundamental growth driver for many specialty pharmaceutical companies.

The $34 billion or so in the space was larger in 2013 than it was in 2012 and 2011 combined. Driving forces for continued M&A in the sector are easy access to capital and those companies with new management and/or tax structures become more acquisitive.

Merrill Lynch also cited that investors have rewarded acquiring companies, and these companies were able to raise more than $31 billion in debt capital in 2013. The Merrill Lynch analyst team issuing the report includes research from the firm’s Gregg Gilbert, Sumant Kulkarnia and Gregory Fraser. Stock prices are also at or challenging all-time highs in many cases in the sector. Where this is also interesting is that Merrill Lynch believes that tax-advantaged companies could become targets themselves.

Merrill Lynch did not exactly go out and name biotech and specialty pharma stock candidates that would be bought, but it did show which companies it believes will make acquisitions or which will be interested in them.

Endo Health Solutions Inc. (NASDAQ: ENDP) is executing on its own plan in the report. Merrill Lynch noted that it is agnostic to the therapeutic area, but will focus on specialty areas outside of the U.S. and look in emerging markets. They believe it will do deals in the $250 to $500 million range. Endo’s market cap is $7.4 billion and is listed as having made 5 acquisitions over the last ten years.

Jazz Pharmaceuticals PLC (NASDAQ: JAZZ) was shown to have a good balance sheet and in the middle of trying to close the Gentium acquisition for close to $1 billion. Merrill Lynch thinks that it will remain active after closing the deal and will focus on differentiated products that are on market or close to market. Those would likely need to have high margins and a targeted audience that can be handled with a relatively small sales force. Jazz has an $8 billion market cap and has made 4 acquisitions in the last decade.

Forest Laboratories Inc. (NYSE: FRX) is already closing on one deal, and was shown as having 3 deals under its belt in the last ten years. The Merrill Lynch report here shows that its focus is on primary care products within its current five therapeutic areas: GI, cardiovascular, CNS, respiratory, and infectious disease. They show that Forest is open to deals to replenish the drug pipeline with a high probability of success. Forest is worth more than $17 billion.

Allergan Inc. (NYSE: AGN) is featured as having a strong balance sheet. It believes that Allergan is constantly looking at various deals, also including licenses and collaborations, to put its balance sheet to work. The perceived focus here is on franchises that have growth potential. Allergan is worth some $34 billion and was shown to have completed 4 deals over the last decade.

Teva Pharmaceutical Industries Ltd. (NYSE: TEVA) was listed as another acquirer. The generic and branded company has been somewhat lost despite a strong balance sheet. The company is called as being committed to expanding in emerging markets by making acquisitions of local companies in markets where the company does not have the right presence or critical mass. For generics, Merrill Lynch thinks it will seek opportunities to expand its global footprint in emerging markets — including Brazil and China – but these deals could also include licensing transactions. Teva was shown to have closed some 18 deals in the past 10 years worth some $32 billion. Teva’s market cap is now only almost $37 billion, but this stock has lost one-third of its value from its peak in 2010.

Mylan Inc. (NASDAQ: MYL) is also in generics and projected to be a considering a broad range of assets and deals. The note here is that a transaction needs to have a strategic rationale, and not solely for tax or cost synergy reasons. The company wants to make sure that it must maintain its investment grade credit rating and that any deal needs to be accretive to earnings. Potential transactions are benchmarked against repurchasing securities here. Mylan was shown to have done four deals in the past decade worth almost $10 billion, and its current market cap is almost $17 billion.

January 15, 2014 by Trey Thoelcke

Source: JoeInQueens, via Wikimedia Commons

The new year is well under way and the major firms on Wall Street are all presenting their best stock ideas for 2014. The team at Cantor Fitzgerald is no exception. The stated goal for their Global Best Ideas report is to provide a thoughtful, action-oriented research product that involves a concise exploration of the issues embedded in each analyst’s industry and investment overviews for the coming year.

Like many firms that we cover, the Cantor Fitzgerald Global Best Ideas list contains quite a few stocks, many of which are international names. We have focused on the 10 top names to buy that are based and trade in the United States. Cantor, like many firms on Wall Street, is very constructive on equity for 2014, but stresses that single stock selection will be more important this year. The rising tide in 2013 that lifted almost all boats may not be in play this year.

Here are 10top domestic names to buy for 2014 from Cantor Fitzgerald.

Apple Inc. (NASDAQ: AAPL) is a top tech stock to buy for 2014 at Cantor Fitzgerald. With a newly signed deal with China Mobile, the smartphone and tablet giant will have exposure to a gigantic potential consumer market in China. This deal could be the best thing to happen to Apple shareholders after the company’s announcement to spend $45 billion over three years in dividends and share repurchases, as it would provide Apple with potential access to more than 700 million customers in the second-largest economy. This market has more than doubled in size in the past two years, and it still has a low penetration rate. Investors are paid a 2.3% dividend, which may be going higher in 2014. The Cantor price target for the stock is $777. The Thomson/First Call price target for the stock is $595.73. Apple closed Tuesday at $546.39.

Celldex Therapeutics Inc. (NASDAQ: CLDX) focuses on developing therapeutic antibodies, antibody drug conjugates, immune system modulators and vaccines. Investors are interested in Celldex because of the unmet need therapies the company is developing. Celldex is working on drug indications that include therapies for glioblastoma, breast cancer, dense deposit disease and lymphoma. A recent secondary stock offering helped shore up the company coffers. The company is expected to update their CDX-1135 drug status next month, which could be a huge catalyst. The Cantor Fitzgerald price target is set at $39. The consensus estimate is$36.89. Celldex closed Tuesday at $27.65. A move to the target would be a 60% gain for shareholders.

Digital Realty Trust Inc. (NYSE: DLR) net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the real estate investment trusts (REITs) industry average. The net income increased by 5.5% when compared to the same quarter one year prior, going from $48.04 million to $50.71 million. This REIT pays investors a strong 6.2% distribution. Cantor Fitzgerald has a $58.50 price objective, and the consensus stands lower at $55.78. The stock closed Tuesday at $51.20.

Facebook Inc. (NASDAQ: FB) had an outstanding year in 2013, and may be poised to do even better in 2014. The rapid increase of mobile advertising sales has put a strong wind at the company’s back. Plus, the company has no viable challenger to threaten its 1.1 billion captive user base. The Cantor Fitzgerald target is at $65. The consensus price target for the social media giant is $60.42. Facebook closed Tuesday at $57.74.

Google Inc. (NASDAQ: GOOG) continues to dominate Internet advertising and is another top stock to buy on the Cantor List. The search giant has for years been evasive about its plans for a so-called public cloud of computers and data storage that is rented to individuals and businesses. Last month, the company announced pricing, features and performance guarantees aimed at companies ranging from start-ups to multinationals. This is a direct shot across the Amazon bow. The Cantor Fitzgerald price target for the stock is $1,175, and the consensus is at $1,150.82. Google closed Tuesday at $1,149.40.

Jazz Pharmaceuticals PLC (NASDAQ: JAZZ) is an orphan drug maker with a bull’s-eye on its back. After buying Gentium, an Italian-based biopharma for its rare liver disease drug Defitelio last December, the buyout rumors have heated up. Jazz is high on the buyout rumor list because it has both a strong commercial portfolio of orphan drugs and it is an expatriate U.S. company now based in Ireland. The Cantor Fitzgerald price objective for this exciting stock is $145. The consensus is at $139.63. The stock closed Tuesday at $145.48.

Splunk Inc. (NASDAQ: SPLK) is rated at Buy at Cantor, and it is one of their top mid-cap name for 2014. The analysts believe the company has a first move advantage in a market supported by strong secular growth, which will provide time for the company to establish its platform strategy. Investors are urged to look for a better entry point. The Cantor Fitzgerald price target is set at $77. The consensus price target for the stock is $73.08. Splunk closed Tuesday at $75.04.

SUPERVALU Inc.‘s (NYSE: SVU) quarterly net profit nearly doubled as the supermarket operator benefited from cost savings after selling hundreds of underperforming grocery stores last year. Last week the company, whose supermarket chains include Cub, Farm Fresh and Shop ‘N Save, said net income rose to $31 million, or $0.12 per share, in the third quarter ended Nov. 30 from $16 million, or $0.08 per share, a year earlier. The Cantor Fitzgerald price target is $9, and the consensus is pegged at $7.63. The stock closed Tuesday at $6.40.

Thermo Fisher Scientific Inc. (NYSE: TMO) has seen the short interest in its stock rise dramatically. The Cantor analysts love that fact and have named the stock their top pick for the second year in a row. The firm sees the integration of the Life Technologies acquisition as the biggest catalyst in 2014 for the stock. The Cantor Fitzgerald price target is $128, and the consensus is at $117.94. The stock closed Tuesday at $114.76.

Verastem Inc. (NASDAQ: VSTM) is discovering and developing drugs to treat cancer by the targeted killing of cancer stem cells. Cancer stem cells are an underlying cause of tumor recurrence and metastasis. Verastem is developing small molecule inhibitors of signaling pathways that are critical to cancer stem cell survival and proliferation. The stock was added to the Nasdaq Biotechnology Index in December. Cantor Fitzgerald has a $22 price target, while the consensus figure is $22.11. Verastem closed Tuesday at $12.81.

The Cantor Fitzgerald top picks are an interesting mix of mega-cap tech and small-cap biotechnology. The analysts also have focused on turnaround stories, which can add huge value for investors. Most of these names should be suitable for portfolios with medium risk tolerance.

Gilead – The Sovaldi (SOF) [chronic hepatitis C (HCV)] launch continuing to exceed high expectations and idelalisib non-Hodgkin’s lymphoma (NHL) approval should drive the stock higher. We project $2.7 billion SOF sales in 2014, which we believe may be conservative, based on strong initial prescription numbers. We expect positive phase II results for SOF+GS-5816 in chronic genotype 3 (GT3) HCV in first-quarter 2014 and approval of SOF+NS5A inhibitor ledipasvir (LDV) FDC in chronic genotype 1 (GT1) HCV in second-half 2014 to further entrench SOF as the backbone of HCV therapy. On top of Gilead’s growing dominance in HCV in 2014, we expect positive outcomes for the company’s oncology pipeline in 2014, including accelerated U.S. approval of idelalisib in double refractory indolent NHL (iNHL). We also expect accelerated idelalisib approval in advanced chronic lymphocytic leukemia (CLL) in 2015.

Celgene – We increase our price target to $193 from $176. We believe the company’s long-term sales/earnings-per-share guidance is conservative, given Celgene’s recent significant pipeline progress. Based on this, we expect Celgene will raise its long-term sales/EPS guidance early next week when the company provides initial 2014 financial guidance. Further, we expect U.S. approval of Apremilast in psoriatic arthritis by the March 21 Prescription Drug User Fee Act (PDUFA) date, based on strong 52-week results from the Palace-4 Phase III trial, and we continue to expect Celgene to price the drug at a discount to the anti-tumor necrosis factor (anti-TNFs) to accelerate U.S. adoption.

Alexion – We are increasing our price target to $143 from $130. We believe Soliris’ sales potential in atypical hemolytic uremic syndrome (aHUS) remains underappreciated, and we expect Alexion to continue a longstanding pattern of beat-and-raise results in 2014. We continue to expect asfotase alfa (AA) will be the next major drug for Alexion, and we expect substantially increased focus on AA ahead U.S./international approvals of the drug for hypophosphatasia (HPP) in 2014/2015. Although timelines for the recently initiated pivotal phase II/III neuromyelitis optica/myasthenia gravis (NMO/MG) trials for Soliris are long, we believe, based on solid phase I/II results, these two indications likely represent blockbuster new markets for Soliris starting in late 2015/early 2016.

Incyte – We are increasing our price target to $70 from $50. We have an increasingly positive stance on Jakafi’s potential in both polycythemia vera (PV) and solid tumors. Consistent with this, we believe clinical results for Jakafi as well as Incyte’s earlier-stage candidates continue to drive upside in the stock. We see positive near-term catalysts from Jakafi phase III Response results in PV in 1Q14 and full phase II results in pancreatic cancer (PC) at ASCO ’14. We expect Incyte to initiate controlled phase II trials of Jakafi and/or molecule INCB039110 (‘110) in refractory non-small-cell lung carcinoma (NSCLC), metastatic colorectal cancer (mCRC) and metastatic breast cancer (mBC) during 2014, underscoring the broad potential for JAK inhibitors in solid tumors.

Celldex – On the company’s fourth-quarter call in February, the company should provide an update on enrollment numbers in the pivotal phase III ACT IV trial for rindopepimut in front-line [tumor specific oncogene] EGFRvIII+ glioblastoma (GBM) and report first clinical data for CDX-1135 in dense deposit disease (DDD). We continue to see a good probability of positive interim results in ACT IV in late 2014, based on consistent and convincing phase II results. In addition, we expect positive full data from the phase II ReAct trial for rindopepimut+Avastin in Avastin-naive/refractory EGFRvIII+ GBM in second-half 2014, based on very encouraging early results from this trial. More importantly, we expect second-half 2014 results on the about 75-patient ReAct expansion cohort in Avastin-refractory EGFRvIII+ GBM to confirm the initial results. We remain very enthusiastic about CDX-1127’s potential to move to the main stage among developmental cancer immunotherapies, and we expect updated phase I expansion cohort data in hematologic malignancies and solid tumors (likely at ASCO ’14) will heighten focus on the drug.

— Bret Holley
— Daniel Chung

Piper Jaffray Has Four Biotech Stocks to Buy With Huge Potential

One of the advantages of having wide Wall Street coverage is the ability to constantly screen even the smallest tidbits of research that is put out each day. Many times firms will put out long-winded, excruciating detail that includes massive graphs and page after page of balance sheet data. Sometimes the data looks small in quantity but is actually huge in quality.

The analysts at Piper Jaffray have returned from meeting with some of the top biotechs the cover, and they have gleaned some interesting morsels that could be huge as the year wears on.

Here are four top biotech stocks to buy at Piper Jaffray that have updated data.

GW Pharmaceuticals PLC (GWPH) recently entered an agreement with Ipsen, a French pharmaceutical company to promote and distribute Sativex, its controversial cannabis spray, in Latin America (excluding Mexico and the Caribbean islands). Sativex is used to treat spasticity in multiple sclerosis patients, and has been approved in 24 countries, primarily across Europe. The company also announced the pending use patent on Epidolex could extend exclusivity of the potential migraine drug until 2032. This is another cannabis related extract. The Piper Jaffray price target for the stock is $73. The Thomson/First Call target is set at $54.50. The stock closed Wednesday at $51.

Nektar Therapeutics (NKTR) is a top name to buy at Piper Jaffray. The company’s clinical pipeline and list of big pharma partners are an impressive list, to say the least. Despite having a whopping eight late-stage candidates, Nektar’s market cap is a paltry $1.3 billion. Its top drug Naloxegol is being developed as a once-daily oral tablet for the treatment of opioid-induced constipation and is licensed out to AstraZeneca. Piper Jaffray has confirmed the FDA panel has switched the drug to the Anesthetic/Analgesic category. This could increase the probability of approval. Cutting to the chase, if the drug is approved next year, Nektar will receive up to $245 million in milestone payments — some of which have already been triggered by the filing of the NDA. Piper Jaffray has a $20 price target on the stock. The consensus price target for the stock is $14

Repros Therapeutics Inc. (RPRX) is looking to convince the FDA that the site 9 protocol “violations” in the Androxal P3 were not actually violations, so the 301 trial should be counted as positive. The analysts at Piper Jaffray believe the company has a strong chance of succeeding. To some extent it does not matter since Repros is running new Phase III trials anyways, but positive FDA feedback could help position the company for a strategic transaction. Androxal is a testosterone replacement therapy. The Piper Jaffray price target for the stock is $26, and the consensus target is higher at $31. Repros closed Wednesday at $21.83.

Vanda Pharmaceuticals Inc. (VNDA) is running radio spots for its non 24 drug, Tasimelteon. New awareness campaigns and patient identification doubled the database in a short period in just five markets. They expanded to 25, then 40 markets and are starting on national syndication. The company will use 2014 to figure out the best strategy for moving patients from the “warehouse” onto the drug, but once they have, the floodgates for sales should open. Non 24 is often a serious issue for the blind or people with extremely poor vision. Piper Jaffray has a $21 price target posted for the stock, and the consensus number is at $21.33

Here are some of the top biotechnology names at Piper Jaffray.

Exelixis Inc. (NASDAQ: EXEL) is a Buy-rated stock at Piper Jaffray. The company is engaged in the development of small molecule therapies for treating cancer. It has an FDA-approved product, Cometriq, in the market for the treatment of progressive metastatic medullary thyroid carcinoma. The company is also trying to find new applications of Cometriq, and a number of clinical trials are underway to assess it for other indications. The Thomson/First Call price target for the stock is $7.08. The stock closed Thursday at $7.19

Endocyte Inc. (NASDAQ: ECYT) is a biopharmaceutical company and leader in developing targeted small molecule drug conjugates (SMDCs) and companion imaging agents for personalized therapy in cancer and other serious diseases. It announced in December preclinical data suggesting the company’s folate receptor-targeted SMDCs may provide a possible new treatment alternative for folate receptor expressing triple negative breast cancer patients. The consensus price target for the stock is $20.89. Endocyte closed Thursday at $10.90. A move to the target would represent a 90% gain

Insmed Inc. (NASDAQ: INSM) was upgraded to Buy on Thursday at JMP Securities. The company focuses on developing and commercializing targeted inhalation therapies for patients battling serious lung diseases. Its lead candidate ARIKACE is engineered to deliver a proven and potent anti-infective directly to the site of serious lung infections to improve the treatment for two identified patient populations. They are targeting patients suffering from cystic fibrosis and other serious lung infections. The consensus price target for the stock is $24.71. Insmed closed Thursday at $19.58.

MannKind Corp. (NASDAQ: MNKD) announced Thursday that the FDA’s Endocrinologic and Metabolic Drugs Advisory Committee will review its new drug application (NDA) for its inhalation powder to treat type 1 and 2 diabetes. This has been an ongoing biotech story for years and it may finally come to fruition. The consensus price objective is $7.68. The stock closed Thursday at $7.08.

Nektar Therapeutics (NASDAQ: NKTR) may be one of the top names to buy. The company’s clinical pipeline and list of big pharma partners are impressive to say the least. Despite having a whopping eight late-stage candidates, Nektar’s market cap is a paltry $1.3 billion. Its top drug Naloxegol is being developed as a once-daily oral tablet for the treatment of opioid-induced constipation, and it is licensed out to AstraZeneca. Cutting to the chase, if the drug is approved next year, Nektar will receive up to $245 million in milestone payments — some of which have already been triggered by the filing of the NDA. The consensus price target for the stock is $14

Xoma Corp. (NASDAQ: XOMA) is shepherding its lead clinical candidate gevokizumab through a number of clinical trials for an impressive array of conditions, and it keeps producing good news for investors. Also, the company had a recent secondary offering that helped to refill the company coffers. The consensus price target for the stock is $8.39. Xoma closed Thursday at $8.17.

Source: Thinkstock

Once again, the analysts at Piper Jaffray are conducting extensive management meetings with the companies they cover. Investors looking for top names to buy now may be at the right place at the right time. Despite the sizable market sell-off, the fundamentals for some of these top names to buy have not changed. What happens with emerging market currency swings is a non-event for these stocks.

In a new research report, the Piper Jaffray team concedes that no dramatic changes are in store for the outlook for the emerging Neuro- and OncoInnovator companies in their coverage. They did review some of the upcoming catalysts (some should be very near term and meaningful for shares) and offered a bit of a first half of 2014 outlook for a few selected names.

Here are the seven top biopharma stocks to buy now at Piper Jaffray.

Avanir Pharmaceutical Inc. (NASDAQ: AVNR) is a name with real upside to buy at Piper Jaffray. Shares of the company rose last week after the company said sales of its drug Nuedexta were strong in the fiscal first quarter. Avanir said it expects to report between $23.3 million and $23.9 million in net sales of Nuedexta. According to FactSet, analysts expected $22.7 million on average. The analyst also think the company will prevail in its current litigation involving the drug. The Piper Jaffray price target is $13. The Thomson/First Call estimate is $8.19. Avanir closed Friday at $3.44. A move to the target would be more than a 300% gain.

BioDelivery Sciences International Inc.‘s (NASDAQ: BDSI) announcement of positive data for BEMA buprenorphine in opioid-naïve patients met the analysts expectations, and the company expects further positive data for the pivotal study in opioid experienced patients around mid-year. According to the company press release, the phase III trial met its primary endpoint of a reduction in the daily average pain numerical rating scale scores from baseline in a study involving chronic back pain. There is also an ongoing second phase III trial that could have results as early as the second half of 2014. The positive results also triggered a $10 million milestone payment from Endo, according to BioDelivery CEO Mark Sirgo. The Piper Jaffray target is currently $10 and may be headed higher. The consensus target is $10.21. The stock closed Friday at $9.41.

Conatus Pharmaceuticals Inc. (NASDAQ: CNAT) should soon have near-term data for its phase II trial for emricasan in acute-on-chronic liver failure, though the Piper Jaffray team believe the stock has been more active as late on read-through from Intercept and its NASH results. They also believe that the drug has a shot at becoming a platform in a product for treating serious conditions of the liver. The Piper Jaffray price target is posted at $16, and the consensus is at $15.75. Conatus closed Friday at $11.28.

Geron Corp. (NASDAQ: GERN) is another name that could make a huge move for shareholders. With the company’s lead hematological malignancy drug imetelstat showing stunning results in a mid-stage trial last year, analysts are keenly awaiting further developments. The problem is that imetelstat will not reach blockbuster status if approved for myelofibrosis alone. The goal would be to get imetelstat approved for a broad range of hematological diseases, which is Geron’s ultimate goal. Piper Jaffray has a $10 target, and the consensus stands at $9.67. The stock closed Friday at $5.71. A move to the target would represent a gain of 75% for investors.

Halozyme Therapeutics Inc. (NASDAQ: HALO) has several potentially very near-term catalysts: EU approval of SC MabThera, data from the phase II study of Hylenex in 400 insulin-pump patients, and phase II data in cellulite. Also important will be FDA input on the path to a label update for Hylenex. Both events are expected to be positive, however it also is likely the outlook of most investors and these events may be largely priced in shares. The price target is placed at $16.50, and the consensus number is much lower at $12.36. The stock closed Friday at $16.55.

Neurocrine Biosciences Inc. (NASDAQ: NBIX) catches an Outperform rating at Piper Jaffray. The analysts believe that its drug NBI 98854 will become the standard of care for patients suffering from Tardive dyskinesia, a neurological disorder that may be caused by long-term or high dose use of antipsychotic drugs. Piper Jaffray has put a $22 price target on the stock, and the consensus number is at $20. Neurocrine closed Friday at $18.10.

Orexigen Therapeutics Inc. (NASDAQ: OREX) is expected to have its obesity drug Contrave approved around June 2014 and to be on the market sometime in the third quarter of 2014. Contrave, in addition to its unique clinical profile targeting both overeating and depression, is the only one of the three obesity drugs that can be sampled, since it is not a scheduled drug. Based on market research conducted by the company, the use of anti-obesity medications in the diabetic and pre-diabetic populations is expected to increase by four times over the next five years. The Piper Jaffray price target for the stock is a staggering $16, and the consensus is at $11.11. The stock closed Friday at $6.78. A move to the target would be a 135% gain for shareholders.

We have noted many times that investing in small cap biopharmaceutical companies is only for very risk-tolerant accounts. The risk of an adverse trial result or an FDA denial can often stall or even end a company’s viability. With that in mind, the Piper Jaffray names at least have some positive tailwinds, as well as upcoming binary events that could trigger huge moves higher.

At this time last year, the sentiment on Wall Street for the medtech sector was very poor. The group started 2013 trading at a 1.2% discount to the S&P 500, but ended the year at a 2.3% premium. On average, large cap medtech stocks increased more than 30% for the year. The bearish sentiment that prevailed in January of 2013 is gone, but expectations are still tempered. That may be the perfect storm for investors.

The Bank of America Merrill Lynch team has a new research report that examines the stocks with the best chance for another year of outperformance. Despite still having a slight premium to their large cap S&P 500 counterparts, large cap medtechs are still trading well within the five-year range. The Merrill Lynch report also has a complete list of stocks to buy in all market cap ranges for 2014. With the concerns on the details of the Affordable Care Act mostly out of the way, investors who buy these top names now may be well rewarded by this time next year.

Here are the three top names to buy sorted by market cap. In addition we have added the other top stocks to buy for 2014.

St. Jude Medical Inc. (NYSE: STJ) is the top large cap idea at Merrill Lynch for 2014. The analysts think that the company should benefit from both increased pipeline visibility in 2014 and potentially industry consolidation long term. In addition, they expect accelerating revenue growth to match up with the improving pipeline, which gives investors two strong attributes for the stock this year. Investors are paid a 1.6% dividend. The Merrill Lynch price target is $68. The Thomson/First Call estimate is $62. St. Jude closed Wednesday at $65.40.

CareFusion Corp. (NYSE: CFN) is the top midcap stock idea at Merrill Lynch for 2014. The company recently announced the completion of its acquisition of the Vital Signs division from GE Healthcare in the United States, China and certain other geographies. Vital Signs is a leading manufacturer of single-patient-use consumables for respiratory care and anesthesiology, a $3 billion global segment. Vital Signs has annual revenue of approximately $250 million. This is a strong addition in terms of revenue and portfolio. Merrill Lynch has a $45 price objective, while the consensus figure is posted at $42. CareFusion closed Wednesday at $40.31.

Globus Medical Inc. (NYSE: GMED) is a top small cap name to buy for this year. The analysts at Merrill Lynch expect a very strong fourth quarter from the company when it posts results. It should be noted they think the company may give conservative guidance, and the year may be more back-end loaded for revenue. The company offers approximately 100 innovative fusion and disruptive technology products that address an array of spinal pathologies, anatomies and surgical approaches. The Merrill Lynch price target is $22, and the consensus target is at $23. The stock closed Wednesday at $19.80.

Here are the other top medtech names to buy at Merrill Lynch for 2014.

Baxter International Inc. (NYSE: BAX) is a sector standout, and it remains a top name to buy at Merrill Lynch. The medical product segment should also be a steady performer for Baxter. In addition to supplying items such as IV solutions, infusion pumps, injectables and anesthesia gases to hospitals and their pharmacies, Baxter offers contract manufacturing services to drug firms and is a leading provider of at-home dialysis solutions outside the United States. With its acquisition of Swedish dialysis player Gambro, medical products is likely to remain Baxter’s largest overall business for the foreseeable future. Investors are paid a solid 2.8% dividend. The Merrill Lynch price target is $82, while the consensus is posted at $77.50. Baxter closed Wednesday at $70.02.

Covidien PLC (NYSE: COV) is another large cap name that the Merrill Lynch team still prefers for 2014. With the continued growth of minimally invasive surgeries around the world, Covidien stands to still be a market leader. By the company’s estimation, it holds around 45% share of the market for endomechanical tools like staplers and energy-based cutting and sealing devices. Investors are paid a 1.9% dividend. Merrill Lynch has a $70 price target, and the consensus is at $75. Covidien closed Wednesday at $68.25.

Intuitive Surgical Inc. (NASDAQ: ISRG) was perhaps one of the strongest momentum stocks of the past decade, until it cracked this year. With the dual hammer of botched robotic surgeries and earnings and system sales drop-offs, the jury is decidedly still out on this former powerhouse name. The bears have circled the stock, and think there could be another negative shoe to drop. That said, Intuitive Surgical dominates the robotic surgery field with its da Vinci system and could roar back to life this year. The Merrill Lynch price target is $460, and the consensus is lower at $425. The stock closed Wednesday at $380.46.

The Merrill Lynch analysts feel that there is little doubt that the structural changes going on in the U.S. health care system (higher co-pays for example) have had a negative impact on health care utilization since 2008. There is also little doubt that the economic slowdown has had an impact, but specifically quantifying the impact of one versus the other has obviously been difficult. With a brighter outlook for the domestic and global economy, and a better idea on how the ACA will affect spending, the top medtech stocks to buy may be a great portfolio addition for 2014.

Jefferies Top Biotech Stocks to Buy

24/7 WallSt By Lee JacksonOctober 14, 2013 8:15 AM

The world of biotechnology investing is a constantly evolving and changing one. While disease for the most part does not change all that much, the manner in which it can be treated does. That creates a world of investment possibilities, with a higher risk tolerance often required for the volatility that is inherent in the sector.

In a new research report, the biotechnology analysts at Jefferies have presented their top biotechnology stocks to buy. They present investors the best names in their universe, which range from mega cap market leaders to small cap contrarian picks. One theme that is consistent in their analysis is a focus on late-stage pipeline potential. Here are the top seven biotechnology stocks to buy at Jefferies.

Array Biopharma Inc. (ARRY) is a small cap stock to buy with huge potential. CNBC’s Jim Cramer was pounding the table on the stock recently. The company reported positive phase 2 data for its experimental drug ARRY-502, used for the treatment of mild to moderate allergic asthma. CEO Ron Squarer said about the treatment: “We were excited by its potential to become the first new oral medication for asthma patients since Singulair was introduced over 15 years ago.” He also said:

Despite the availability of treatment options the ongoing burden of asthma remains extremely high. This is partially due to a large proportion of patients not being well controlled on current medications and due to poor compliance with inhaled drugs. By some estimates as many as 80% of asthma patients are poorly controlled at this time.

Marketed by Merck & Co. Inc. (MRK), Singulair had global sales of $3.8 billion in 2012. A competing product offered by Array would be huge for the company. The Jefferies price target is $8. The Thomson/First Call estimate is also $8. Array closed Friday at $5.53.

Biogen Idec Inc. (BIIB) has been hit hard during the recent market sell-off. The company is projected to have only a 10% increase in earnings. The biotech’s results have varied widely, sinking 7% in the fourth quarter, but then rebounding 41% and 26% in the next two periods. The Jefferies analysts see a scenario where sales of Biogen’s top drug, Tysabri, for treatment of multiple sclerosis, could double. The Jefferies price target for this top large cap stock is $266. The consensus target for the stock is placed at $263. Biogen closed Friday at $234.80.

Cubist Pharmaceuticals Inc. (CBST) has used acquisitions to bolster its outstanding portfolio of antibiotic drugs. The company also has four phase 3 pipeline products in development, which could boost sales and earnings dramatically. If the phase 3 trials for CXA-201 prove successful, the Jefferies team sees a 19% potential upside from current valuation. The price target for the stock is posted at $70, the same as the consensus price objective. Cubist closed Friday at $65.94.

Incyte Corp. (INCY) is Jefferies’ top mid-cap pick, as the analysts remain encouraged by the Jakafi launch trajectory in myelofibrosis and believe the combination of positive data for Jakafi in polycythemia vera (PV), the potential for a better-than-expected launch in PV and emerging excitement surrounding the company’s new solid tumor initiative anchored by Jak 1/2 inhibition and its IDO inhibitor could generate significant share appreciation for the stock in the next year. Jefferies also thinks that Incyte could become one of the leading biotech players in immune checkpoint targets for cancer, one of the most exciting new areas of cancer research. The price target for the stock is $44. The consensus target is listed at $39.50. Incyte closed Friday at $37.05.

Medivation Inc. (MDVN) is a leader in prostate cancer drugs and treatment. One out of every six men in the United States ultimately will have the disease in one form or another. The company is waiting on final results from a critical ongoing phase 3 trial with its partner Astellas on its cancer drug Xtandi. The drug will be able to be used as a pre-chemo prostate therapy. The Jefferies price target for the stock is $66, while the consensus price target for the stock is even higher at $70. Medivation closed Friday at $50.97.

NewLink Genetics Corp. (NLNK) is expected to release additional data to support the impressive findings in years prior, regarding both pancreatic and non-small cell lung cancer. Back in late September, NewLink gave investors a taste of what may come when the company announced that its HyperAcute immunotherapy platform produced a better-than-expected response in the treatment of both diseases. Jefferies has a $29 price target for the stock. The consensus target is posted at $26.50. The Jefferies target is the highest on Wall Street. A trade to its objective would represent a 60% gain from current levels. NewLink closed Friday at $19.26.

Synta Pharmaceuticals Corp. (SNTA) is another small cap that is Jefferies’ ultimate contrarian call. Some 48% of the company’s stock is sold short, and Jefferies thinks Synta may be one of the most undervalued names in the entire biotech sector. The company’s lead drug, ganetespib, is an unpartnered small-molecule Hsp90 inhibitor in phase 3 trials for second-line lung cancer with pivotal expected this time next year. The 500-patient phase 3 GALAXY-2 trial is now enrolling and includes criteria to screen only for chemo-sensitive patients. The analysts expect positive results. In addition, ganetespib has shown single-agent activity in breast cancer, which Jefferies views as adding upside estimates, with four of 16 triple negative breast cancer patients achieving an objective response. The Jefferies price target for the stock is a gigantic $22. The consensus is at $16. A move to the Jefferies target would represent a gain of well over 200%. The stock closed Friday at $6.45.

The Jefferies stocks to buy range from the biggest and perhaps best of the mega caps to small caps with huge upside potential. The advantage of being able to place stocks in a portfolio that match an investor’s risk profile is key. Owning Biogen, Amgen Inc. (AMGN), Gilead Sciences Inc. (GILD) or any of the top large cap names provides more safety. Swinging for the fences with an aggressive play like Synta can really bring home the trader’s dream if it comes in. Biotech investing provides both avenues

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J.P. Morgan’s biotech analysts are bullish on the sector heading into next week’s big investment conference in San Francisco:

The biotech sector had a stellar 2013 (NBI: +65%; S&P: +29%) driven by strong demand for the sector’s key products, many positive phase 3 studies and a wave of successful IPOs. Looking to 2014, we think the fundamental backdrop is very similar with 1) beatable revenue growth expectations (2014e: +16% vs. 2012/2013: +12%) including several high-profile drug launches, 2) many pivotal studies set to read out and 3) a stable/favorable regulatory and reimbursement environment. Notably, these factors should continue to make biotech attractive to generalist investors, who played a major role in the 2013 outperformance. Our bias is to stick with large caps as well as mid-caps with approved products; revenue/EPS/cash flow forecasts for 2015 and beyond look broadly beatable, in our view. In contrast, we suspect that “pure pipeline” or tech platform small caps could be more volatile in 2014. We continue to believe that the biotech industry is in the early innings of an innovation cycle with many label expansion opportunities and novel agents in phase 2 or 3 trials that are largely unaccounted for in Street models. Hence, we are bullish on the group for 2014.

Biotechnology was an incredible performer in 2013, outperforming the S&P 500 by a stunning 36%. The analysts at J.P. Morgan think that the huge outperformance may lessen but can stay intact. Driven by strong demand for the sector’s key products, many positive phase III studies and a wave of successful initial public offerings, 2013 had all the tailwinds possible.

Looking to 2014, they think the fundamental backdrop is very similar to 2013 with:

Beatable revenue growth expectations (they estimate 2014 growth will be +16% over 2013, which was up +12%), including several high-profile drug launches

Many pivotal studies set to read out

A stable/favorable regulatory and reimbursement environment

The J.P. Morgan team highlights in their report that on an earnings multiple basis, large-cap biotech stocks are trading much higher than the S&P 500. Despite the disparity, they think that large caps are poised for an inflection point in revenue growth over the next two years, driven by significant drug launches in major therapeutic categories. So while large-caps lead the pack in their top stocks to buy, they are bullish across the biotech market cap spectrum.

Here are the top biotechnology stocks to buy listed by market cap.

Gilead Sciences Inc. (NASDAQ: GILD) leads off the list of top names to buy for 2014. With a successful hepatitis C drug Sovaldi launching and a very strong and impressive oncology pipeline, the company is poised for another outstanding year. The company also continues to innovate in the HIV arena, which grew 11% in 2013. The J.P. Morgan price target for the stock is $100. The Thomson/First Call estimate is $88. Gilead closed Tuesday at $72.78.

Vertex Pharmaceuticals Inc. (NASDAQ: VRTX) is another big cap biotech leader to buy. The company also got on the biotechnology map with a blockbuster hepatitis C drug. The company looks poised to get revenue growing again with its cystic fibrosis franchise. It already has one drug approved, but Kalydeco by itself is only appropriate for about 4% of cystic fibrosis patients. To have Celgene-type success, Vertex needs drugs in its pipeline that are being tested with Kalydeco to be a success. J.P. Morgan has a $100 target, and consensus target is lower at $94. Vertex closed Tuesday at $74.49.

Incyte Corp. (NASDAQ: INCY) is well positioned with a growing commercial franchise and significant near- and long-term pipeline optionality. It is making progress with its pipeline and is poised to expand its oncology drug Jakafi’s development into more solid tumors. In 2014, the J.P. Morgan team believes news flow from a series of mid/late-stage programs could add significant value to the stock. The J.P. Morgan price target for the stock is posted at $60, and the consensus is at $48. Incyte closed Tuesday at $51.96.

BioMarin Pharmaceutical Inc. (NASDAQ: BMRN) has finally begun to control its spiraling costs. The J.P. Morgan analysts feel that while BioMarin has an attractive pipeline, concern about management’s ability to control costs and allow the company to become sustainably profitable. Over the past decade, BioMarin has become one of the top orphan drug companies, and it looks poised to stay there. The company is expected to post around $545 million in revenue this year and possibly around $700 million next year, following the approval of Vimizim, an enzyme replacement therapy for Morquio syndrome. The J.P. Morgan price target is $83, and the consensus target is $82. BioMarin closed Tuesday at $68.54.

Alkermes PLC (NASDAQ: ALKS) hopes its ALKS-5461 can win approval from the Food and Drug Administration (FDA) and capture a significant share of the antidepressant drug market. With Eli Lilly’s Cymbalta losing patent protection, the company has a huge opportunity to step into the market, which continues to grow each year as 7% of all U.S. adults experience clinical depression. The J.P. Morgan price target for the stock is $47, and the consensus figure is lower at $37. Alkermes closed Tuesday at $40.46.

Aegerion Pharmaceuticals Inc. (NASDAQ: AEGR) engages in the development and commercialization of novel therapeutics to treat debilitating and fatal rare diseases in the United States. They specialize in orphan drugs that in some cases often require less strenuous testing by the FDA. They anticipate that the company’s Juxtapid drug will generate more than $1 billion in peak sales. The J.P. Morgan team sees $600 million in sales by 2017. The J.P. Morgan price target is posted at $105, while the consensus stands at $105.50. Aegerion closed Tuesday at $68.89.

Clovis Oncology Inc. (NASDAQ: CLVS) will be presenting at the huge J.P. Morgan Healthcare conference, which begins next week in San Francisco. The stock has seen a steady increase since November 20, due to the acquisition of Ethical Oncology Science. Clovis acquired the company for its experimental mid-stage breast cancer candidate Lucitanib. This boosts the company pipeline to three strong candidates. J.P. Morgan has a $94 price objective for the stock, and the consensus number is at $92. Clovis closed Tuesday at $61.42.

While it is unlikely that the biotech sector sees the kind of outperformance posted in 2013, it is a likely bet that numbers will continue to be strong. In addition, many large pharmaceutical companies are seeing patent expirations on their top selling names. If they do not have strong pipelines, they may look to acquisitions to expand their potential product offerings

Source: Thinkstock

Most of the major mega cap biotechnology companies have reported earnings and the results almost across the board have been very good. The problem for many investors is many of the top names have become very expensive, so it is extremely difficult to take any sort of substantial position in the stocks. While it is clearly better from a risk tolerance standpoint to own the big market leaders, it is not always feasible for a retail investor.

The analysts at J.P. Morgan have three top names to buy that may be just what the doctor ordered when it comes to serving up some big gains. With three top small cap names to buy, all with catalysts that could drive outperformance, investors are given the shot to swing for the fences. It is important to remember that small cap biotech investing is only suitable for account with a very aggressive risk tolerance bias. Not for conservative accounts where preservation of capital is priority number one.

Here are two top names to buy with huge potential upside and another that also has tremendous potential.

InterMune Inc. (NASDAQ: ITMN) got hit last week when a competitors Phase III data on similar top pipeline candidate was supposedly leaked. Top Wall Street biotech firm Summer Street Research immediately came out and said InterMune weakness is a buying opportunity and expects the ASCEND trial of pirfenidone for idiopathic pulmonary fibrosis to be successful when the data is top lined. InterMune is also one of its top picks for 2014. The J.P. Morgan team concurs and also continues to believe there is a high probability of success for the Phase III ASCEND trial. Data is expected in the second quarter, so current entry timing may be good. The J.P. Morgan price target is a strong $23. The Thomson/First Call estimate is at $17.43. InterMune was trading mid-day at $11.26. A move to the target would be a gigantic 102% move for shareholders.

NPS Pharmaceuticals Inc. (NASDAQ: NPSP) could have a solid year. CEO Francois Nader told Wall Street analysts to expect an FDA advisory panel to be held for its leading drug candidate Natpara before the October Prescription Drug User Fee Act date. If the panel is positive and the drug is approved, NPS will be ready to launch the drug before the end of the year. NPS also is gearing up to start a Phase IIa study of NPSP790 in autosomal dominant hypocalcemia later this year. The J.P. Morgan price target is $40, and the consensus is at $39.27. NPS is trading at $33.30.

Protalix BioTherapeutics Inc. (NYSE: PLX) is another name that could be a huge home run. The company currently has an FDA-approved drug and is in the process of developing its ProCellEx platform. ProCellEx is a modular cell culture platform capable of producing various biological drugs from plant cell lines; the current status quo in the industry utilizes Chinese hamster ovary, or CHO, cells. Protalix owns a proprietary platform — and numerous patents surrounding the processes involved — that could provide a way around the patent protection of numerous blockbusters, and it offers several compelling advantages over the industry standard. The J.P. Morgan price target is $7, and the consensus target is $6.20. The stock traded mid-day Thursday at $4.21. A move to the target would be a 65% gain for investors.

While biotech investors always run the risk of clinical failure, the J.P. Morgan stocks to buy all have an interesting story that may prove to be outstanding if the upcoming binary events are positive. Again, these stocks are only for very aggressive accounts and are not suitable for conservative investors.

UBS offers four reasons biotech should stay strong in 2014:

(1) Fundamentals are still very strong for many individual companies, in terms of visibility into new product cycles and 3+ year growth;

(2) We’re bullish on bellwether product launches for Gilead’s Sovaldi and Biogen’s Tecfidera, which will keep confidence high in the commercial relevance of biotech innovation;

(3) Several key pipeline events are expected, particularly among mid-caps where we are most bullish;

Like many firms on Wall Street, the biotechnology team at UBS thinks that most of the top mega-cap and large cap biotech stocks are poised to beat earnings estimates across the board. Company guidance is often very conservative, but as the UBS team points out, most companies comfortably beat initial guidance as a rule. Perhaps a trick learned from the technology world, which is notorious for conservative guidance.

The fourth-quarter numbers will also give analysts across Wall Street a look at some of the top new drugs that have gone on the market. For the companies in UBS coverage universe, they have updated their fourth-quarter estimates ahead of earnings, using feedback from recent meetings with management as well as checks on prescription trends. The bottom line? Numbers should be very good, and investors who buy the top names in the sector in front of earnings may be well rewarded.

Alexion Pharmaceuticals Inc. (NASDAQ: ALXN) is a stock to buy at UBS and a potential acquisition target. While not a pure large cap stock, the UBS analysts see likely accretive near-term to an acquirer, given $1.5 billion revenues that are big enough to be significant to a bigger company. The UBS price target for the stock is $150. The Thomson/First Call estimate is posted at $139.70. Alexion closed Tuesday at $133.01.

Amgen Inc. (NASDAQ AMGN) is one of the mega cap biotechs that UBS thinks will handily beat this year’s earnings estimates. Over the past five years, the company has had free cash flow of at least $3 billion a year. Over the past decade, the company has grown after-tax profit by 14% compounded annually. Investors are even treated to a 2% dividend. Amgen posted strong numbers after the close Tuesday. The UBS price target for the stock is $129, and the consensus number is set at $127.57. Amgen closed Tuesday at $120.70.

BioMarin Pharmaceutical Inc. (NASDAQ: BMRN) is a top mid-cap to buy at UBS and a possible takeover target. The UBS team thinks that media speculation of big-pharma interest in BioMarin is likely related to the commercial success of the orphan drug model globally. Its diversified and expanding pipeline could also provide significant strategic value to acquirers. The UBS price target for the stock is posted at $76, and the consensus figure is $81.05. BioMarin closed Tuesday at $68.29.

Celgene Corp. (NASDAQ: CELG) is another mega cap name to buy at UBS. The big biotech recently presented results from an analysis that showed encouraging news for blockbuster drug Revlimid as a treatment for multiple myeloma. A combination of Revlimid and low-dose dexamethasone significantly improved overall survival and progression-free survival rates, leading some experts to conclude that the treatment probably now will become the new standard of care for the disease. UBS has a $200 price target. The consensus target for the stock is $188.65. Celgene closed on Tuesday at $159.98.

Gilead Sciences Inc. (NASDAQ: GILD) is another favorite name to buy for 2014. With a successful hepatitis C drug Sovaldi launching and a very strong and impressive oncology pipeline, the company is poised for another outstanding year. The company also continues to innovate in the HIV arena, which grew 11% in 2013. The UBS price target for the stock is $102. The consensus estimate is $91.68. Gilead closed Tuesday at $80.67.

Incyte Corp. (NASDAQ: INCY) is another Buy-rated name that could be in the sights of a larger company. In addition to its current validated approach in hematology-oncology, there is reason to believe the three wholly owned clinical-stage assets could drive several billions in revenue. Something important for an acquiring company. The UBS price target is $74, and the consensus number is set at $59.60. Incyte closed Tuesday at $65.32.

Medivation Inc. (NASDAQ: MDVN) has a top prostate cancer drug that would be a valuable acquisition. Xtandi is a highly leverageable likely blockbuster product in prostate cancer, a very large market segment with potential upside in breast cancer. The partnership with Astellas suggests a natural buyer, but the UBS team thinks that third parties would also be interested. The UBS price objective for the stock is $90, which is raised from the previous target of $74. The consensus target is $76.33. Medivation closed Tuesday at $75.78.

Vertex Pharmaceuticals Inc. (NASDAQ: VRTX) is another big cap biotech leader to buy. The company also got on the biotechnology map with a blockbuster hepatitis C drug. The company looks poised to get revenue growing again with its cystic fibrosis franchise. It already has one drug approved, but Kalydeco by itself is only appropriate for about 4% of cystic fibrosis patients. To have Celgene-type success, Vertex needs drugs in its pipeline that are being tested with Kalydeco to be a success. UBS has a $93 target, and the consensus target is slightly lower at $92.90. Vertex closed Tuesday at $79.30.

With many of the top names reporting soon, scaling in some stock in front of the numbers may be an excellent move for investors. Putting on a half position may work out the best. If the stock goes higher on the numbers, you are already in. Conversely, if they miss or there is disappointment but the thesis is still intact, investors can add to their position at a lower price. Despite four solid years of returns, most on Wall Street agree that 2014 should be another good year for the sector.

Goldman Sachs is taking a more negative view on biotech for 2014, downgrading the sector to Neutral from Attractive:

In 2013 the biotech sector outperformed (+66% vs. S&P +30%), and since the start of the recent rally (which we peg to the readout of the first Tecfidera Phase 3 data on April 21, 2011) the sector is up +116% vs. S&P +37%. We see current valuations on the majority of the stocks as fair and expect earnings rather than multiple expansion to dictate future stock performance. While we continue to believe biotech deserves to trade at a premium multiple to the S&P (given its superior growth profile), we find it difficult to make a case for continued multiple expansion (or a higher premium relative to S&P) or lower discount rates based on the following: (1) our estimates for key product cycles are now in line to slightly below consensus, (2) we have a more measured view of upcoming 2014 pipeline readouts, (3) revenues from the sector are continuing to shift towards small molecules and away from biologics (BIIB, CELG and GILD) whereas pharma’s revenue mix has been moving in the opposite direction (ABBV and BMY), and (4) GS economists are projecting the 10-year Treasury rate to rise to 3.25% in 2014. In conjunction we downgrade ALXN to Neutral and CELG to Sell. We are also changing our estimates and price targets for ARIA, CBST, UTHR, VRTX, ALKS and INFI to reflect recent pipeline updates.

We see current valuations on the majority of the stocks as fair and expect earnings rather than multiple expansion to dictate future stock performance. While we continue to believe biotech deserves to trade at a premium multiple to the S&P (given its superior growth profile), we find it difficult to make a case for continued multiple expansion (or a higher premium relative to S&P) or lower discount rates…

As a result, Goldman Sachs analyst Terence Flynn and team cut Alexion Pharmaceuticals to Neutral from Buy and Celgene to Sell from Neutral. Their top picks: Amgen (AMGN) and Regeneron Pharmaceuticals (REGN).

Yet Goldman wasn’t the only investment bank out with a biotech note this morning, though they’re feting far less play because a) there’s no big sector downgrade and b) they’re not Goldman Sachs. Take Citigroup’s Yaron Werber and team, who see more biotech upside, even while noting the sector’s sky-high valuation. He writes:

While the fundamentals are better than the S&P500, we anticipate that generalists will move away from biotech to other sectors when the macro environment improves. Until then, largecap biotech will continue to draw in funds…we anticipate that this group will remain strong in ’14…but likely will post appreciation that is driven by EPS growth…any P/E multiple expansion will likely require upside surprise from pipelines.

Basd on Weber’s analysis, however, only Celgene and Regeneron are trading below their discounted-cash-flow values, and he sees earnings upside for Celgene and GileadSciences(GILD

Janney Capital Market’s Kimberly Lee also offers a more nuance view than the title of her report, “Time to Invest in Biotech,” suggests. She writes:

Given the significant run-up in the biotech indices versus the S&P 500 index in 2013, (BTK +55%; NBI +68%; SPX +29%), we find that investors are focused on what 2014 holds for valuation of the sector and which companies could outperform this year…Even though we are hopeful that the biotech sector could continue to demonstrate positive performance in 2014, we suggest investing in a basket of stocks that include profitable and non-profitable companies with both marketed and developmental-stage products and value-driving catalysts to minimize volatility in the portfolio.

Lee rates Alexion a Neutral.

So there you have it. Everyone worries about the same issues–high valuations–and they all further upside dependent on earnings.

[We] looked back at 2012 and 2013 original [biotech] guidance and compared to actual reported results. The conclusion…was clear: 1) [Amgen,Biogen (BIIB) , Celgene and Gilead] have a strong recent history of beating original guidance by as much as 3-12% by year end, thus setting up the year nicely for investors. 2) In nearly all cases, actuals or consensus ended up exceeding the top end of original guidance….

We think his is particularly attractive to large-cap generalist portfolio
managers who are seeking strong top and bottom line organic earnings
growth stories with an ability to exceed consensus and potential to raise
guidance through the year – particularly in a tough macro-environment.
This is part of why these stocks did so well in 2013 (and why [Celgene] had
a full on re-rating in 2013). We recommend large cap biotech for 20%
EPS growth and upside potential…

Yee call Gilead his best idea, while he deems Amgen the least risky.

Shares of Celgene have dropped 4.8% to $161.68 at 11:08 a.m., while Regenron has fallen 1.2% to $268.49, Alexion has declined 2.3% to $128.74, Amgen has dipped 0.3% to $114.10, Gilead is off 1.5% at $73.23 and Biogen has dropped 1.4% to $273.46.

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Source: Thinkstock

Large cap biotech stocks have seen incredible stock performance over the past few years. The problem for many investors is that many of the key stocks have become so expensive that it is very difficult to see a continued strong performance. Even using call options is expensive, and the investors always run the risk that the option contract will expire worthless.24/7 Wall St. ran a screen of the Wall Street firms we cover looking for names trading under $10 that had big upside potential for 2014. Almost all the names have either a proven and salable drug, or have had extensive success in phase II or phase III trials for their leading drug candidates.

We would of course caution readers that although many may be on the path to success, biotech investing always entails a greater deal of risk compared to established companies in most sectors. The reality is that most of these stocks are simply unsuitable for conservative investors. That being said, these are potentially the next great growth engines in a sector that can post phenomenal growth numbers regardless of how the economy is growing and regardless of Federal Reserve interest rate policy.

Arena Pharmaceuticals Inc. (NASDAQ: ARNA) is a small cap name to buy at Jefferies for 2014. Its approved obesity drug Belviq scripts have started to show signs of modest growth in the past few weeks, albeit starting from very small numbers. Partner Eisai recently announced that it will double its U.S. sales force to 400, and it has also left the door open for future expansions. The Jefferies price target for the stock is $12. The Thomson/First Call estimate is almost $8. Arena closed Thursday at $5.87.

CytRx Corp. (NASDAQ: CYTR) is a top small cap name focusing on oncology drugs. Its oncology pipeline includes two programs, aldoxorubicin and tamibarotene, which are in clinical development for cancer indications. The aldoxorubicin is in pivotal phase III preparation ongoing stage of development for patients with soft tissue sarcomas whose tumors have progressed following treatment with chemotherapy. The potential for this drug is huge, and investors could see a big payback. Aegis Capital has an $8 target on this red-hot name. The consensus price target for the stock is $7.50. Shares closed Thursday at $6.90.

Dyax Corp. (NASDAQ: DYAX) is a top name to buy at Jefferies. The company announced in early December that the U.S. Food and Drug Administration (FDA) has granted orphan drug designation to its drug candidate DX-2930, its fully human monoclonal antibody inhibitor of plasma kallikrein, for use in the treatment of hereditary angioedema. Orphan drug designation is granted by the FDA Office of Orphan Drug Products to novel drugs or biologics that treat a rare disease or condition affecting fewer than 200,000 patients in the United States. The Jefferies price target for the stock is $8.50. The consensus target is almost $8.00. Dyax closed Thursday at $7.60.

Galena Biopharma Inc. (NASDAQ: GALE) may be the home run that biotech investors are looking for. With an FDA-approved pain medication, a partnership with generic giant Teva Pharmaceuticals and a superior pipeline, the stock may be an acquisition target. Aegis Capital has a $5 price target on the stock, while the consensus is about $4.90. Galena closed on Thursday at $5.16. In recent trading, the stock has seen huge volume increases. Big investors may be building a big position.

Novavax Inc. (NASDAQ: NVAX) makes the Piper Jaffray list of top stocks to buy for 2014 and is also a buy at Lazard and FBR Capital, as well as made our Five Big analysts stock picks for 2014 list. This clinical-stage biopharmaceutical company uses recombinant nanoparticle technology to develop vaccines for a wide variety of infectious diseases. The company presently has six vaccine candidates undergoing clinical trials, with a seventh (rabies) being readied for a phase I study later this year. The Piper Jaffray price target is $7. The consensus estimate is almost $10. The stock closed Thursday at $5.21.

Synta Pharmaceuticals Corp. (NASDAQ: SNTA) is another leading oncology name to buy at Jefferies. The company is primarily focusing on developing its lead cancer drug ganetespib as a treatment for non-small-cell lung cancer, breast cancer and colorectal cancer. If approved, the drug is expected to hit annual peak sales of $425 million to $600 million. The Jefferies price target for the stock is a huge $19, and the consensus is almost $16. Synta closed Thursday at $5.26.

Zogenix Inc. (NASDAQ: ZGNX) is a top name to buy at Oppenheimer for 2014. The FDA recently approved its top new drug Zohydro. The drug is a timed release form of hydrocodone, which is one of the most highly prescribed pain medications in the world. The Zogenix drug contains no acetaminophen, which has been proven to cause liver damage. This is a boon to patients suffering from oncology related pain, as often radiation therapy weakens or damages the liver. The Oppenheimer price target for the stock is set at $5. The consensus price target is almost $5.25. Zogenix closed Thursday at $3.43.

Again, the small cap biopharmaceutical names are not for conservative accounts — an absolute avoid for the “widows and orphans” investment funds. That said, some of these stocks have drugs in the pipeline that could change the game in their respective fields. Investors looking to deploy more speculative capital may want to take a closer look at some of these stocks.

Every day TheStreet Ratings produces a list of the top rated stocks, by industry. The following biotech stocks are rated highest by our value-focused model. This list will be updated as upgrades and downgrades occur.

Credit Suisse is out and pounding the table that biotechnology cannot be ignored in 2014. Biotech has been the top-performing sector for the past three years, with year-to-date performance up 73%. Given those kinds of numbers, there is every reason to believe they may be right.

Credit Suisse top analyst Ravi Mehrotra is out with his biotech outlook for 2014. In the report he points out that large-cap biotech can be a notable outperformer in 2014, based on the continued application of his team’s standing “generalist growth at a reasonable price (GARP) inflows” thesis. Ravi believes the investment drivers shift from a near solitary focus on growth due to a perfect storm of blockbuster Phase III data and approvals, to one that includes: 1) top and bottom line earnings beats, 2) operating leverage, 3) agency cost and 4) strong pipeline growth.

Here are the top biotech stocks to buy at Credit Suisse and their updated price targets for 2014.

Biogen Idec Inc. (BIIB) remains the top name in class and is an industry powerhouse. The Credit Suisse team point out that trading at just 21 times 2015 earnings, the stock is not overvalued. The Credit Suisse price target for 2014 goes to $375 from the current $290. The Thomson/First Call estimate for the stock is at $290. Biogen closed Tuesday at $285.19.

Celgene Corp. (CELG) is another mega cap name to buy at Credit Suisse. The big biotech recently presented results from an analysis that showed encouraging news for blockbuster drug Revlimid as a treatment for multiple myeloma. A combination of Revlimid and low-dose dexamethasone significantly improved overall survival and progression-free survival rates, leading some experts to conclude that the treatment probably now will become the new standard of care for the disease. Credit Suisse ups its price target from $165 to $210. The consensus target for the stock is $178. Celgene closed on Tuesday at $170.77.

Gilead Sciences Inc. (GILD) makes the Credit Suisse list for 2014. With approval of its hepatitis C drug Sovaldi, the company is entering a very lucrative and growing market. Acquired when Celgene bought Pharmasset in November of 2011, the drug is an oral nucleotide polymerase inhibitor that interferes with the life cycle of the hepatitis C virus and suppresses its replication. Credit Suisse raise the price target on the stock to $110 from $90. The consensus price target is lower at $85. Gilead ended trading Tuesday at $72.81.

Regeneron Pharmaceuticals Inc. (REGN) stays on the top of the list at Credit Suisse for 2014. With treatments for everything from macular degeneration to colorectal cancer, the company continues to exploit an extraordinary pipeline. The company is viewed by Credit Suisse as a leading candidate to be one the next generation biotech large cap leaders. The firm has placed a $340 price target on the stock. The consensus is at $339.50. Regeneron closed Tuesday at $277.50.

Medivation Inc. (MDVN) makes the list of preferred names to buy for 2014. Medivation and Astellas just initiated a Phase II trial for Xtandi as a prospective treatment for ER+ (estrogen receptor positive), PgR+ (progesterone receptor positive) and HER2 (human epidermal growth factor receptor) normal breast cancer. The new study will test Xtandi, which is best known as one of the three biggest treatments for metastatic prostate cancer, along with Johnson & Johnson’s Zytiga and Dendreon’s Provenge, on a group of 240 postmenopausal women who have received no more than one prior chemotherapy treatment and one prior hormonal treatment. The Credit Suisse price target for the stock is $80, while the consensus is at $71. Medivation closed Tuesday at $61.25.

Endocyte Inc. (NASDAQ:EYCT) is a small cap name that could have big returns for investors. The company develops targeted therapies for the treatment of cancer and inflammatory diseases. The company uses its proprietary technology to create novel small molecule drug conjugates and companion imaging diagnostics. With three pivotal trials and regulatory events in 2014, the company could be poised for a big year. The Credit Suisse target price for the stock is $24. The consensus is slightly lower at $21. Endocyte closed Tuesday at $10.38, so a trade to the target could be a gain of more than 100% for shareholders.

When investors look at the huge gains that biotech has made over the past three years, it is natural to be skeptical about another year of outperformance. However, as we pointed out in some of the stock summaries, based on forward earnings, many of these top stocks to buy are not overvalued. As we have stressed, midterm election years can be volatile for the stock market. Investors may want to wait for a correction before adding new capital to some of these top names.

Many of the top Wall Street firms released their top 2014 ideas in the month of December. This is the first full trading week of 2014, and many firms are still issuing their top research outlook pieces. The analysts and strategists at Baird waited until the new year to publish their list, as they wanted to watch the year wind down to the very bitter end. This makes sense, just in case there is some sort of year-end event that can change their thesis for 2014.

Like most of the Wall Street firms we report on, the team at Baird is looking for a solid 2014, but not the blockbuster year we had in 2013. Their year-end target for the S&P 500 is posted at 1,900. While they have plenty of concerns, their proprietary models and key indicators continue to suggest that positioning for additional upside with an offensive tilt is the most prudent course of action for investors. They are specifically positive on technology, health care and financials, sectors that seem to rank high at most of the firms we report on.

Here are 10 top Baird growth stock picks for 2014 by sector.

Broadcom Corp. (NASDAQ: BRCM) is a former high-flyer trying to fight its way back to prominence. The stock of this provider of semiconductor solutions to wireless and wired communications has seen a surge over the past four weeks and may be on portfolio managers’ radar. A key reason for this move has been the positive trend in the earnings estimate revisions picture. For Broadcom’s full-year estimate, nine estimates have gone higher in the past 30 days, compared to no downward revision. This trend has helped the consensus estimate to rise from $1.78 a share a month ago to its current level at $1.84. Investors are paid a 1.5% dividend. The Baird price target is $35. The Thomson/First Call estimate is pegged at $32. Broadcom closed Friday at $28.97.

Fortinet Inc. (NASDAQ: FTNT) is right in the thick of the cyber security sector, and it is hot. The company’s FortiGate network security platform is the first third-party next-generation firewall to be certified by NEC to protect its cloud platform. Since 2010, NEC and Fortinet have worked together to deploy the FortiGate platform as the security resource in the SDN environments NEC has built. Baird has a $25 price target. The consensus price target for the stock is also posted at $25. The stock closed Friday at $19.27.

SolarWinds Inc. ( NYSE: SWI) offers customers enterprise-class network management products, including SolarWinds Network Performance Monitor that monitors and analyzes network performance metrics for routers, switches, servers and other simple network management protocol enabled devices. The business is solid with a clean balance sheet, and the growth is still on the high end. Baird has a $45 target, while the consensus figure is at $41. SolarWinds closed Friday at $38.11.

LuLulemon Athletica Inc. (NASDAQ: LULU) is a controversial retail name to make the Baird list. Despite numerous product and management gaffes and issues in 2013, the stock is a leader in the yoga-wear field. Shares of Lululemon finished the year having lost more than 22% of their value. With an eye on the future, investors may want to take advantage of a solid price entry point. Baird has a $76 price target, and the consensus is at $69. The stock closed Friday at $58.78.

Michael Kors Holdings Ltd. (NYSE: KORS) has been a hot retail name, and it looks poised to remain one in 2014. The company’s performance has been led by the double-digit growth of its operating results. In the second quarter of fiscal 2014, Michael Kors delivered 39% revenue growth, as sales rose to $740 million, while operating income increased by 40% to $221 million. Baird has placed a $97 target on the stock. The consensus figure is lower at $90. Michael Kors closed Friday at $82.51.

Cabot Oil & Gas Corp. (NYSE: COG) is a name that fits the bill at Baird. The company’s mid-December operating update reaffirms several issues the analysts believe positions the shares for another strong year in 2014. Strong production and a long-term selling agreement with Pacific Coast Summit Energy are cited as big positives. The Baird price target for the stock is $48. The consensus estimate is $45. Cabot closed Friday at $37.95.

Range Resources Corp. (NYSE: RRC) is the other name that the Baird team favors. Strong production gains in its Marcellus wells are adding to overall gains that could drive revenues higher in 2014. Investors are paid a very small 0.2% dividend. Baird has a $99 price target, while the consensus is much lower at $90. Range Resources closed the day Friday at $80.53.

Pharmacyclics Inc. (NASDAQ: PCYC) has been a top biotech name in 2013 and looks to stay that way this year. The company operates as a clinical-stage biopharmaceutical company focusing on developing and commercializing small-molecule drugs for the treatment of cancer and immune mediated diseases. Goldman Sachs recently cited the recent stock pullback as a golden opportunity for investors to buy stock. The Baird price objective is $132, and the consensus number is higher at $147.50. The stock closed Friday at $105.78.

Regeneron Pharmaceuticals Inc. (NASDAQ: REGN) has been a monster as well, and most Wall Street firms expect it to stay one. With treatments for everything from macular degeneration to colorectal cancer, the company continues to exploit an extraordinary pipeline. The company is viewed by Baird and other firms as a leading candidate to be one the next generation biotech large cap leaders. Baird has placed a $320 price target on the stock. The consensus is at $340. Regeneron closed Friday at $271.75.

Vertex Pharmaceuticals Inc. (NASDAQ: VRTX) rounds out the triumvirate of big cap biotech leaders to buy. The company first got on the biotechnology map with a blockbuster hepatitis C drug. The company should be able to get revenue growing again with its cystic fibrosis franchise. It already has one drug approved, but Kalydeco by itself is only appropriate for about 4% of cystic fibrosis patients. To have Celgene-type success, Vertex need drugs in its pipeline that are being tested with Kalydeco to be a success. Baird has a $93 target, and consensus is higher at $94. Vertex closed Friday at $73.45.

The Baird ideas are an eclectic and interesting list for investors. As a top regional firm, it tends to dig a little deeper, looking for ideas with not only growth potential, but catalysts. For the most part, the usual big cap candidates are notably absent from their list. That sets Baird apart from many of the firms we cover, which is good for investors looking for a fresh view.

All of the major firms on Wall Street we cover have prognostications and stock picks for 2014. The Cowen biotechnology team has a list of top 10 surprises that are specific to the very hot biotechnology sector. In an effort to stimulate discussion and aid out-of-the-box thinking, they have scanned their coverage universe for potential surprises. In order to qualify for their list, a “surprise” must constitute an event that is less than 40% likely, not well discussed or anticipated by the market.

The annual Cowen list of “Top 10 Potential Surprises” for the new year includes events that are (1) underappreciated by the investment community, (2) have at least some chance of occurring during 2014 and (3) would be associated with significant stock price ramifications. They rank in likelihood from #10 being the most likely to #1 being the least likely. Here are the top 10 potential surprises of 2014.

Surprise #10

The Cowen analysts think that at least one of Vertex Pharmaceuticals Inc. (NASDAQ: VRTX) VX-809 Phase III trials will fail. Vertex is well known for its hepatitis C drugs and is testing VX-809 for cystic fibrosis. While the analysts agree that VX-809′s Phase III trials are more likely to succeed than fail, they think there is still a meaningful chance that at least one of the trials fails to produce a statistically significant p-value on its primary endpoint of improvement in lung function. A failure could have a big effect on the stock price in the short term. Cowen has a 40% chance of probability. Vertex closed Wednesday at $68.63.

Surprise #9

Gilead Sciences Inc. (NASDAQ: GILD) historically has used its cash to buy back shares and acquire companies. Investors do not see Gilead changing its stripes any time soon. The Cowen team thinks that increased product sales will drive cash flow and the company will initiate a stock dividend for shareholders, which is uncommon for large biotech names. They would expect Gilead to continue to buy back shares, and the company has indicated it will still be active in business development. Nonetheless, it only makes sense to the Cowen team that Gilead will look at new ways to return cash to shareholders, with a dividend being an obvious alternative. Probability is posted at 30%. Gilead closed Wednesday at $73.59.

Surprise #8

More and more companies will go public in 2014. This year was a banner one for initial public offerings (IPOs). By Cowen’s count, 37 biotech companies debuted on the public markets, more than any year since 2000, when 63 companies went public. However, toward the latter part of 2013, IPO stock price performance waned, deal fatigue set in and several companies were forced to postpone their offerings. The Cowen team is pretty sure that with the Nasdaq trading close to all-time highs, the window for IPOs will open back up. They believe it is not unreasonable to assume that if the next round of IPOs is priced appropriately, they too will perform well and entice more capital back into the marketplace. The probability is set at 25%.

Surprise #7

After years of struggle, an obesity pill finally starts selling. The once-heralded pill to help end the obesity epidemic has struggled and traction has been poor. Nonetheless, Cowen believes that there is a chance that the second half of next year could
witness more substantial uptake of one or more obesity drugs. This would likely be driven by continued physician education and more patient-friendly reimbursement. They handicap the three players in the obesity arena.

Arena Pharmaceuticals Inc.’s (NASDAQ: ARNA) Belviq scripts have started to show signs of modest growth in the past few weeks, albeit starting from very small numbers. Partner Eisai recently announced that it will double its U.S. sales force from 200 to 400, and it has also left the door open for future expansions. Arena closed Wednesday at $5.58.

Orexigen Therapeutics Inc. (NASDAQ: OREX) is expected to have its obesity drug Contrave approved around June 2014 and to be on the market sometime in the third quarter of 2014. Contrave, in addition to its unique clinical profile targeting both overeating and depression, is the only one of the three obesity drugs that can be sampled, since it is not a scheduled drug. Orexigen closed Wednesday at $5.46.

VIVUS Inc. (NASDAQ: VVUS) may have the safest drug of the three. The Cowen surveys and channel checks with obesity physicians again point to Qsymia as being the most efficacious obesity agent among the three, and as having an acceptable safety profile in patients (with the exception of women who are actively trying to get pregnant). The biggest issue for the drug has been the disastrous commercial strategy pioneered by the company’s prior management team. VIVUS closed Wednesday at $9.38.

Cowen analysts think that the company that takes significant traction and market share in this field could have significant upside. They predict that an obesity winners stock could have 50% upside potential. They assign a 20% probability of that happening in 2014.

Surprise #6

BioMarin Pharmaceutical Inc. (NASDAQ: BMRN) finally begins to control its spiraling costs. The Cowen analysts feel that while BioMarin has an attractive pipeline, folks worry about management’s ability to control costs and allow the company to become sustainably profitable. The shares have doubled over the past year, and Cowen thinks that investors will demand cost controls from the company. The company’s spending has become a larger and larger focus, and in fact, lack of spending discipline has become a prominent bear thesis, and one of the most common reasons why some growth managers will not own BioMarin. Cowen assigns an 18% probability to this scenario. BioMarin closed Wednesday at $68.76.

Surprise #5

Amgen Inc. (NASDAQ: AMGN) is the top performing biotech stock in 2014. The venerable biotech giant has become the sellsides favorite whipping boy with only 50% of analysts assigning a Buy rating to the stock. The Cowen team feels that at a very low 14 times 2014 earnings, the stock has the lowest multiple of all the biotech large caps by a large margin. With solid earnings, a robust pipeline and a higher dividend, the stock may become very attractive to portfolio managers, especially if there is a significant correction in 2014. The Cowen analysts assign a 15% probability. Investors are paid a 1.6% dividend. Amgen closed Wednesday at $112.73.

Surprise #4

Biotech plunges into a bear market in 2014. The Nasdaq biotech index has soared the past three years, up 1,300 points and almost 140%. However, there are many worrisome signs that the biotech rally is closer to the top than the bottom. Most prominent, generalist interest in the sector is high. Historically generalist interest in the sector has waxed and waned, and peaks in interest have coincided with biotech market tops. That being said, Cowen only assigns a 10% probability to a biotech crash and ensuing bear market.

Surprise #3

Ariad Pharmaceuticals Inc. (NASDAQ: ARIA) was crushed back in October from over $20 to now under the $5 range, when sales of its drug Iclusig were suspended in the U.S. due to safety concerns. The Cowen team expects that Iclusig will eventually be reintroduced to the U.S. market with a narrowed label. Iclusig remains the only effective drug for T315I mutant patients, where the risk benefit seems positive. They assign a 5% probability. Ariad closed Wednesday at $4.98.

Surprise #2

Celgene Corp. (NASDAQ: CELG) fails to generate cash in 2014. Celgene’s non-GAAP financials have become increasingly disconnected from its cash flow generating capabilities. This has been driven by (1) an increase in upfront payments to corporate partners, which the company excludes from non-GAAP EPS and (2) and increase in stock compensation expense, which requires subsequent share repurchases for share stabilization. The probability assigned to this scenario is 3%. Celgene closed Wednesday at $162.48.

Surprise #1

Is very tongue-in-cheek and designed to give big institutional investors and portfolio managers a laugh. Michael Aberman, the Vice President of Strategy and Investors Relation at biotech giant Regeneron Pharmaceuticals Inc. (NASDAQ: REGN) wins the Mr. Universe bodybuilding competition on October 25, 2014. The analysts assign a very low .005% probability to this.

At 24/7 Wall Street we applaud when the firms we cover make an effort to show investors high-gain possibilities and trades for the coming year. It is easy just to lay out a conservative scenario that in most cases will play out. It is far more difficult to take some real longshots like the Cowen analysts have done.

A single biotech and drug stock (Lannett) posted a six-fold bump in share price this year. Nine stocks increased in value by five times, 3 stocks quadrupled in value and 26 stocks tripled in value, according to S&P CapitalIQ.

Not all biotech and drug stocks fared so well in 2013: The biggest losers were: